Bills Digest No. 48 2004–05

WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.

The Customs Tariff Amendment (Textile,
Clothing and Footwear Post-2005 Arrangements) Bill 2004 ( the
Customs Tariff Bill ) and the Textile, Clothing and Footwear
Strategic Investment Program Amendment (Post-2005 Scheme) Bill 2004
( the TCF Post-2005 Bill ) have been introduced previously on 16
June 2004.(1) However, with the prorogation of the
40th Parliament, both Bills have lapsed.

The Government has reintroduced the Bills
without having made any changes to the original Bills introduced
during the 40th Parliament.

The Customs Tariff Bill amends the Customs
Tariff Act 1995 ( the Act ) to reduce the general rate of
customs duty on textile, clothing and footwear ( TCF ) items
from
1 January 2010 and 1 January 2015.

The scheduled reductions will mean that the
general rate of customs duty applicable to all TCF goods (with the
exception of clothing and finished textiles) will be 5 per cent
from
1 January 2010. The general rate of customs duty on these other
items will be reduced to
5 per cent from 1 January 2015.

The TCF Post-2005 Bill is introduced cognate
with the Customs Tariff Bill, proposing amendments to the
Textile Clothing and Footwear Strategic Investment Program Act
1999.

The TCF Post-2005 Bill extends and simplifies
the current industry support program available to TCF
manufacturers, the TCF Strategic Investment Program (SIP) Scheme,
which will end on 30 June 2005. The TCF Post-2005 Bill extends the
SIP Scheme for a further 5 years (or ten years for TCF entities
undertaking clothing and finished textile activities) and
establishes the TCF Small Business Fund.

The Customs Tariff Bill 2004 and the TCF
Post-2005 Bill implement the Government's response to the 2003
Review of TCF Assistance by the Productivity Commission as
announced by the Minister for Industry, Tourism and Resources on 27
November 2003 (see
Ministerial Press Release).

Following amendments made in 1999 to the Act,
TCF items currently at 25 per cent customs duty will be reduced to
17.5 per cent from 1 January 2005, those at 15 per cent will be
reduced to 10 per cent and those at 10 per cent will be reduced to
7.5 per cent. Those TCF items currently at 5 per cent will not
change:

Australian tariff rates: TCF
items(all rates expressed as per cent
of value)

Clothing,
finished textiles, household textiles

Cotton sheeting,
woven fabrics

Sleeping bags,
table linen

Carpets

Footwear

Footwear
parts

Other*

2000-04

25%

15%

10%

15%

15%

10%

5%

2005

17.5%

10%

7.5%

10%

10%

7.5%

5%

* Textile
yarns.

As part of the phase-down in tariffs the
Government provided certain incentives to TCF producers to
undertake restructuring and achieve efficiency gains in the period
up to 2005. The objective was to provide special assistance, for a
limited period, to those sectors of the industry that had a strong
prospect of becoming internationally competitive. The SIP Scheme is
the main component of the TCF assistance package.

Following a review of TCF tariffs by the
Productivity Commission in July 2003, the Government announced a
five-year pause on tariff reductions after the scheduled 2005
tariff reductions followed by a further tariff phase-down. The
Government agreed with the Commission s preferred option to reduce
tariffs in two steps, with all TCF items except clothing and
finished textiles coming down to 5 per cent on 1 January 2010.
Tariffs on these items would fall to 10 per cent on1 January 2010and on1 January 2015would step down again to 5 per
cent.

The Government also announced a $747
million package of support measures to encourage industry
restructuring (which included an extension of the SIP Scheme),
additional support for the clothing and finished textiles sector to
2015 and a $25 million grants-based program to support TCF small
businesses.

The scheduled
tariff reductions will mean that most of the TCF tariff lines will
be at 5 per cent or lower from 1 January 2010 (with the remainder
falling to 5 per cent in 2015) and are in line with Australia s
APEC commitment under the 1994 Bogor Agreement to free and open
trade by 2010:

Australian tariff rates: TCF
items(all rates expressed as per cent
of value)

There are five
types of grants available under the current SIP Scheme. The three
largest of these provide grants for new plant/building expenditure
(Type 1), for R&D expenditure (Type 2) and for value adding in
TCF activities (Type 3). The smaller grants (Types 4 and 5) are
designed to provide assistance to communities facing restructuring
and employment problems.

Funding for the
current scheme is capped at $700 million over five years. In
2002-03, $130 million was paid through the scheme. Around 60 per
cent of SIP payments were for Types 1 and 2 grants. Type 3 grants
accounted for 38 per cent of payments while Types 4 and 5 grants
accounted for less than one per cent.

The TCF Post-2005
Bill amends the SIP Scheme and provides for only 2 types of grants.
The new Scheme, renamed the TCF Post-2005 (SIP) Scheme ( Post-2005
scheme ), will be capped at $575 million, of which $487.5 million
will be the amount capped for the 2005-06 to 2009-10 income years
and $87.5 million for the 2010-15 income years.

Type 1 and 2
grants will provide for a 40 per cent capital investment subsidy
and an 80 per cent innovation subsidy respectively. As under the
current scheme, grants can only be paid in arrears on the basis of
demonstrated performance in the areas specified.

In line with WTO
rules, the overall level of assistance to an individual TCF firm
from both the Post-2005 scheme and the Import Credit Scheme
(Product Diversification Scheme) in any one year is limited to 5
per cent of its total sales revenue in the preceding twelve
months.(2) A summary of the Post-2005 scheme is
contained in the Main Provision section below.

Australia s domestic market is small compared
to the global TCF market and is absorbing increasingly higher
levels of TCF imports. The projected tariff reductions in January
2010 and 2015 will bring additional adjustment pressures to bear on
the TCF industry which is already undergoing significant change and
restructuring. These pressures will be felt in Victoria where
almost half of all TCF manufacturing is located. The new industry
support measures totalling $747 million will help provide a
framework for guiding the industry to the next stage of its
development.

The TCF industry
has demonstrated its preparedness to reduce its reliance on the
domestic market through increasing the current levels of TCF
exports which are currently worth
$1 billion annually. Over the past ten years these exports have
doubled in real terms. However, future growth through exports will
not occur without further trade liberalisation by Australia s
trading partners in the region and elsewhere.(3) At this
stage, given the lack of progress in the Doha Round of trade
negotiations over TCF tariffs, it is unlikely that further tariff
reductions will occur globally.

The Customs Tariff Bill will maintain the
current preferential regime, therefore the gradual reductions of
the general rate applicable to preference countries envisaged by
the Customs Tariff Bill will have the effect that most preference
countries will enjoy tariffs that are Free (i.e. zero) as of 1
January 2010.(7) Under the current legislative
arrangements, the only exception to this will be Canada. However,
amendments envisaged by Schedule 1 Part 1 of the
Customs Tariff Bill (Items 7, 18, 49, 50, 56, 57, 110, 111,
112, 117 and 122) ensure that the dutiable rate for
Canadian goods will be Free after 1 January 2010.

In relation to the special rates applicable to
DCT (8) and DCS (9) countries as set out in
Schedule 1, Part 4 and 5 of the Customs Tariff Act 1995,
the general rate will apply to Part 1 goods manufactured or
produced in those countries from 1 January 2010.

The amendments set out in Schedule 1
Part 2 of the Customs Tariff Bill will not interfere with
the margins of tariff preference and duty free entry for preference
countries, with the tariff becoming or remaining Free after 1
January 2010. Item 351 of the Customs Tariff Bill
preserves the preferential treatment for Canada, and ensures that
goods produced or manufactured in Canada will become free of
tariffs as of 1 January 2010.

The amendments set out in Schedule 1
Part 3 of the Customs Tariff Bill will not interfere with
the margins of tariff preference and duty free entry for preference
countries. The tariff will gradually be reduced as set out in the
table above, with the tariff preference margin ensuring that when
the general rate sinks to 5% on 1 January 2015, the preference rate
will be Free. Item 541 of the Customs Tariff Bill
preserves the preferential treatment for Canada with the tariff for
goods produced or manufactured in Canada becoming Free as of 1
January 2010, and remaining Free after 1 January 2015.

Item 672 will allow the
Government to operate a 'Product Diversification Scheme' under the
Customs Tariff legislation for certain clothing and finished
textiles. Based on a duty credit scheme, this scheme will apply to
goods entering Australia for home consumption.

Schedule 1 Item 10 of the TCF
Post-2005 Bill introduces a new Division 4A into
the TCF(SIP) Act, providing for the payment of conditional grants
available under the scheme.

Central to the conditional grant scheme is
proposed section 18A of the TCF Post-2005 Bill.
Subsection 18A(1) stipulates that the scheme may
provide for the payment of grants subject to certain conditions
which may be imposed as a condition precedent or subsequent.

to make copies
of any document found in hardcopy on the premises
(paragraph 18A(4)(f)), and

to receive reasonable facilities and assistance in connection
with the monitoring (paragraph 18A(4)(g)).

Whilst
the Department of
Industry, Tourism and Resources ( the Department ) has the
authority to monitor compliance, it is important to note that it
has no power to compel compliance with the conditions. Rather,
where an entity has breached a condition imposed under the grant,
the Commonwealth may recover the conditional grant pursuant to s.43
of the TCF(SIP) Act.

Subsections 18A(5) to
(7) confers powers on the Secretary of the
Department ( the
Secretary ) in relation to monitoring the compliance with
the conditions imposed under the scheme. These include the power
to:

specify the business premises to be accessed (subsection
18A(5))

appoint a qualified APS employee as authorised officer within
the meaning of the Division (subsection 18A(6)),
and

appoint an employee of and authorised Commonwealth contractor to
be an authorised officer for the purposes of the new
Division 4A (subsection
18A(7)).

put electronically stored documents into hard copy form and
remove those documents from the premises (subsection
18B(2)), or

transfer electronically stored documents to another electronic
storage device, such as a disk or tape and remove this storage
device from the premises (subsection 18B(3)).

Section 18C provides
similar powers to an expert who is required to assist the
authorised officer with the retrieval of relevant information from
electronic storage devices by operating special equipment. However,
whilst the expert is authorised to:

Pursuant
to section 18D of the TCF Post-2005 Bill, a
precondition to the operation of electronic
equipment for the retrieval of electronically stored information is
that the person operating the equipment holds the reasonable belief
that it can be operated without causing damage.

Where,
however, equipment has been damaged as a result of
the operation of the equipment, the Commonwealth has to pay
reasonable compensation to the entity pursuant to section
18E. Under subsection 18E(1), the
compensation is only payable where:

damage is caused to the equipment (subparagraph
18E(1)(a)(i))

damage is caused to the data recorded on the equipment
(subparagraph 18E(1)(a)(ii)), or

programs associated with the use of the equipment, or with the
use of the data, are damaged or corrupted (subparagraph
18E(1)(a)(iii)),

and, where the damage was due to:

the exercise of
insufficient care in selecting the person who operated the
equipment (subparagraph 18E(1)(a)(i)), or

the exercise of insufficient care by the person operating the
equipment (subparagraph 18E(1)(a)(ii)).

The
Commonwealth is required to pay compensation as agreed upon with
the owner or user (subsection 18E(2)). Only where
the Commonwealth and the owner or user cannot agree upon a
reasonable amount, the Federal court will gain jurisdiction over
the dispute under subsection 18E(3). To determine
the amount payable, regard is to be had to whether the occupier of
the premises, or the occupier s employees and agents, provided any
appropriate warning or guidance on the operation of the equipment
(subsection 18E(4)).

As
mentioned above, before operating equipment, it is a prerequisite
pursuant to section 18D of the TCF Post-2005 Bill
to hold a reasonable belief that the operation will be safe for the
equipment and damage or corruption will not occur as a result of
the use. It may be, however, that this preliminary decision will
not be caught by the compensation provision.

Section 18E of the Bill provides for a
compensation scheme that expressly applies to situations where
damage or corruption occurred as a result of insufficient care
taken:

in the selection of the person to operate the equipment, or

in the operation of the equipment itself.

Arguably
a person could take 'sufficient care' in operating a computer even
though they did not have reasonable grounds for believing that the
operation of the equipment could be carried out without causing
damage. In this case, compensation for any damage may not be
payable under the terms of section 18E.
Subparagraph 18E(1)(b)(ii) could be amended to
provide for compensation where a person lacks the reasonable belief
required by section 18D.

Division 4 of the new
Part 3A introduced by the TCF Post-2005 Bill
empowers the Minister to introduce a registration regime for
entities into the Post-2005 scheme (subsection
37L(1)). Examples for possible requirements relating to
the registration of entities are listed in subsection
37L(2)and
include, for example:

a requirement that an entity must apply for registration, or

that the entity s application for registration be accompanied by
a statement issued by a specified person as to the entity s future
financial viability.

Subsection 37L(3)provides examples for
possible consequences as a result of non-compliance with the
registration requirements, including:

the consequence that the entity is not eligible for a grant,
or

the consequence that the entity s eligibility for a grant is
subject to restriction or reduction.

Pursuant
to Division 5 of the new Part 3A,
entities will only be eligible for grants if they have complied
with the Post-2005 scheme s provisions in relation to the content
and submission of strategic business plans (section
37M). Under section 37N, the Post-2005
scheme may also contain similar stipulations in relation to the
compliance with the requirements relating to the submissions of
audited or unaudited accounts and financial statements
(subsections 37N(a) and (b)).

Division 6 of the new Part 3A
sets out the framework in relation to grants subject to conditions.
The framework mirrors the provisions set out in the proposed
Division 4A and the details are discussed
above.

Item 12 also inserts a new
Part 3B into the TCF(SIP) Act which appropriates
funding for the TCF Small Business Program. Pursuant to
subsection 37ZJ(3), the Government has
appropriated $25 million for this purpose. The Department is
responsible for administering the program, which includes
determining:

recipients eligible for grants

payable amounts

timing of payments, and

possible terms and conditions of the payments.

The remaining Item 13 to
Item 24 contain consequential amendments to the
Act.

The Import Credit Scheme (Product Diversification Scheme) will
allow eligible TCF producers to import finished clothing and
textiles at a discounted tariff rate, with the amount being linked
to a firm s additional production.

Michael Priestley and Thomas John
26 November 2004
Bills Digest Service
Information and Research Services

This paper has been prepared to support the work of the
Australian Parliament using information available at the time of
production. The views expressed do not reflect an official position
of the Information and Research Service, nor do they constitute
professional legal opinion.

IRS staff are available to discuss the paper's
contents with Senators and Members and their staff but not with
members of the public.

Except to the extent of the uses permitted under the
Copyright Act 1968, no part of this publication may be
reproduced or transmitted in any form or by any means, including
information storage and retrieval systems, without the prior
written consent of the Parliamentary Library, other than by members
of the Australian Parliament in the course of their official
duties.